Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.6.0.2
Acquisitions
12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Acquisitions
Acquisitions
2016 Acquisitions
eSupply Systems, LLC
In June 2016, we acquired substantially all of the assets of eSupply Systems, LLC (“eSupply”) and those of certain entities related to eSupply. eSupply is an e-procurement software and group purchasing service which augmented our Spend Management solutions.
We acquired eSupply for a purchase price of $7.0 million, consisting of a cash payment of $5.5 million at closing and a deferred cash obligation of up to $1.6 million, payable over 18 months after the acquisition date. The fair value of the deferred cash obligation on the date of acquisition was $1.5 million. The first deferred cash payment was made in the fourth quarter of 2016. This acquisition was financed using proceeds from the Term Loan issued in February 2016.
The acquired identified intangible assets consisted of developed technology and client relationships. These intangible assets were assigned estimated useful lives of three and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies with our existing Spend Management solutions. Goodwill and the acquired identified intangible assets are deductible for tax purposes.
AssetEye, Inc.
In May 2016, we acquired all of the issued and outstanding stock of AssetEye, Inc. (“AssetEye”). AssetEye is a data aggregation, reporting, and collaboration platform for institutions holding multiple real estate asset classes. This solution provides asset and portfolio managers with a solution to evaluate performance, trends, and operations across a portfolio with transparency into property-level data. The acquisition of AssetEye expanded the Company’s on demand solutions to serve all asset classes, including: commercial, hospitality, multifamily, single family, senior living, and student housing.
We acquired AssetEye’s issued and outstanding stock for a purchase price of $4.9 million. The purchase price consisted of a cash payment of $3.6 million at closing, net of cash acquired of $0.8 million; deferred cash obligations of $1.0 million, payable over a period of two years following the date of acquisition; contingent cash payments of up to $1.0 million if certain revenue targets are achieved during the three-month period ended September 30, 2017; and additional cash payments of $0.2 million due to former shareholders of AssetEye which are expected to be remitted over a short-term period. The fair value of the deferred and contingent cash obligations was $0.9 million and $0.2 million, respectively, at the date of acquisition. This acquisition was financed with proceeds from the Term Loan issued in February 2016.
The acquired identified intangible assets included developed technology and client relationships having useful lives of five and ten years, respectively. We recognized goodwill in the amount of $3.2 million related to this acquisition, which is primarily comprised of anticipated synergies between the AssetEye solution and our existing complementary solutions as well as our sales and marketing infrastructure. Goodwill and identified intangible assets recognized in connection with this transaction are not deductible for tax purposes.
NWP Services Corporation
In March 2016, we acquired all of the issued and outstanding stock of NWP Services Corporation (“NWP”). NWP provides a full range of utility management services, including: resident billing; payment processing; utility expense management; analytics and reporting; sub-metering and maintenance; and regulatory compliance. The primary products offered by NWP include Utility Logic, Utility Smart, Utility Genius, SmartSource, and NWP Sub-meter. We are integrating NWP into our resident services product family. The integrated platform will enable property owners and managers to increase the collection of rental utilities and energy recovery. Goodwill arising from this acquisition consists of anticipated synergies from the integration of NWP into our existing structure.
We acquired NWP’s issued and outstanding stock for an initial purchase price of $69.0 million. The purchase price consisted of a cash payment of $59.0 million at closing, net of cash acquired of $0.1 million; deferred cash obligations of $7.2 million, payable over a period of three years following the date of acquisition; and other amounts totaling $3.2 million, consisting of payments to certain employees and former shareholders of NWP that are expected to be remitted over a short-term period. The acquisition-date fair value of the deferred cash obligation was $6.8 million. This acquisition was financed with proceeds from the Term Loan issued in February 2016. Acquisition costs associated with this transaction totaled $0.3 million and were expensed as incurred.
The acquired identified intangible assets were comprised of developed technologies, trade name, and client relationships having useful lives of five, three, and ten years, respectively. Goodwill and identified intangible assets acquired in this business combination, valued at $35.3 million and $16.3 million in our initial purchase price allocation, have carryover tax bases of $0.7 million and $11.0 million, respectively, which are deductible for tax purposes. Goodwill and identified intangible assets recognized in excess of those carryover tax basis amounts are not deductible for tax purposes. Accounts receivable acquired had a gross contractual value of $11.3 million at acquisition, of which $3.4 million was estimated to be uncollectible.
We assigned approximately $10.2 million of value to deferred tax assets in our initial purchase price allocation, consisting primarily of $9.9 million of federal and state net operating losses (“NOL”). This NOL amount reflects the tax benefit from approximately $27.3 million of NOLs we expect to realize after considering various limitations and restrictions on NWP’s pre-acquisition NOLs.
In connection with the acquisition of NWP, we recorded an indemnification asset of $1.2 million, which represents the selling security holders’ obligation under the purchase agreement to indemnify the Company for the outcome of certain accrued obligations. The indemnification asset was recognized on the same basis as the corresponding liability, which is based on its estimated fair value as of the date of acquisition.
Subsequent to the acquisition date, management continued to review information relating to events and circumstances that existed at the acquisition date. This review resulted in measurement period adjustments to the provisional amounts recorded at the acquisition date related to deferred cash obligations paid to the sellers and deferred tax assets associated with the transaction. These measurement period adjustments resulted in a change in goodwill, deferred tax assets, and the deferred cash obligation of $(1.8) million, $1.0 million, and $(0.8) million, respectively.
Purchase Price Allocation
The estimated fair values of assets acquired and liabilities assumed presented below are provisional and are based on the information available as of the acquisition date. We believe that this information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is awaiting additional information necessary to finalize those values. Therefore, the provisional measurements of fair value are subject to change, and such changes could be significant. We expect to finalize the valuation of these assets and liabilities as soon as practicable, but no later than one year from the respective acquisition dates.
The preliminary allocation of each purchase price, including the effects of the measurement period adjustments described above, was as follows:
 
NWP
 
AssetEye
 
eSupply
 
(in thousands)
Restricted cash
$
4,960

 
$

 
$

Accounts receivable
7,902

 
90

 
259

Property, equipment, and software
3,194

 

 

Intangible assets:
 
 
 
 
 
Developed product technologies
2,740

 
1,638

 
2,160

Client relationships
12,900

 
1,041

 
1,390

Trade names
709

 
6

 
35

Goodwill
33,520

 
3,154

 
3,216

Deferred tax assets, net
11,173

 

 

Other assets, net of other liabilities
3,065

 
8

 
71

Accounts payable and accrued liabilities
(6,962
)
 

 
(147
)
Client deposits held in restricted accounts
(5,018
)
 

 

Deferred revenue

 
(16
)
 
(29
)
Deferred tax liabilities, net

 
(1,010
)
 

Total purchase price
$
68,183

 
$
4,911

 
$
6,955


At December 31, 2016, deferred cash obligations related to acquisitions completed in 2016 totaled $8.7 million, and are carried net of a discount of $1.2 million in the Consolidated Balance Sheets. The aggregate fair value of contingent cash obligations related to these acquisitions was $0.5 million at December 31, 2016. During the year ended December 31, 2016, we recognized a loss of $0.3 million due to changes in the fair value of contingent cash obligations related to these acquisitions.
We made deferred cash payments of $0.1 million during the year ended December 31, 2016, related to these acquisitions. During the same period, we made payments totaling $3.3 million related to amounts due to certain employees and former shareholders of the acquired businesses described above. There were no payments of contingent cash obligations made related to these acquisitions during the year ended December 31, 2016.
2015 Acquisitions
Indatus
In June 2015, we acquired certain assets from ICIM Corporation, including the Answer Automation, Call Tracker, and Zip Digital products, marketed under the name Indatus. The Indatus offerings are software-as-a-service ("SaaS") products that provide automated answering services, marketing spend analysis tools, and other features which enhance the ability of managers of multifamily properties to communicate with their residents. We are currently integrating the Indatus assets with our existing contact center and maintenance products, which will increase the features of these existing solutions.
We acquired the Indatus assets for a purchase price of $49.4 million, consisting of a cash payment of $43.8 million at closing; deferred cash payments of up to $5.0 million, payable over nineteen months after the acquisition date; and contingent cash payments of up to $2.0 million, in the aggregate, if certain revenue targets are met for the twelve months ending June 30, 2016 and 2017. The first deferred cash payment was made in the third quarter of 2016. The contingent consideration revenue targets for the twelve-month period ended June 30, 2016, were not achieved and no payment was made. If the revenue targets for the second twelve-month period are achieved, the maximum potential contingent consideration payment is $2.0 million. The fair value of the deferred and contingent cash payments was $4.7 million and $0.9 million, respectively, as of the acquisition date. Direct acquisition costs were $0.3 million and the acquisition was financed using proceeds from our Revolving Facility.
The acquired developed product technologies and client relationships have useful lives of three and ten years, respectively. The trade name acquired was amortized over a useful life of one year, based on our anticipated use of the asset. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of synergies from the integration of Indatus with our pre-existing products and from leveraging our existing client base and sales staff.
VRX
In June 2015, we acquired certain assets from RJ Vacations, LLC and Switch Development Corporation, including the VRX product (“VRX”). VRX is a SaaS application which allows vacation rental management companies to manage the cleaning and turning of units, accounting, and document management. We integrated VRX with our Kigo vacation rental solution.
We acquired the VRX assets for a purchase price of $2.0 million, consisting of a cash payment of $1.5 million at closing and a contingent cash payment of up to $0.5 million. Payment of the contingent cash obligation was dependent upon the achievement of certain subscription or booking activity targets and is subject to adjustments specified in the acquisition agreement related to the sellers’ indemnification obligations. The contingent cash obligation had a fair value of $0.5 million, as of the acquisition date, and was due fifteen months after the date of acquisition.
The acquisition agreement also provided for the sellers to receive additional contingent cash payments of up to $3.0 million. Payment of the additional contingent cash obligations is dependent upon the achievement of certain revenue targets during the twelve month periods ending December 31, 2016, 2017, and 2018, and the sellers providing certain services during a specified period following the acquisition date. Due to this post-acquisition service requirement, the Company concluded that the additional contingent cash obligations represent post-acquisition compensation; therefore, these amounts were excluded from the purchase consideration. The revenue targets for the first contingent cash payment were not met. Additionally, one of the sellers separated from the Company prior to completing the required service period. As a result of this separation, the maximum potential payout of the remaining contingent cash payments is $1.5 million. This acquisition was financed using cash flows from operations.
The acquired developed product technologies have an estimated useful life of three years. The estimated fair value of the client relationships acquired was immaterial and these intangible assets were expensed as of the acquisition date. Goodwill arising from the acquisition consisted largely of synergies from the integration of VRX with Kigo. Goodwill and identified intangible assets associated with the acquisition are deductible for tax purposes.
Purchase Price Allocation
We allocated the purchase price of Indatus and VRX as follows:
 
 
Indatus
 
VRX
 
 
(in thousands)
Accounts receivable
 
$
646

 
$

Intangible assets:
 
 
 
 
Developed product technologies
 
13,400

 
794

Client relationships
 
9,770

 
11

Trade names
 
83

 

Goodwill
 
25,575

 
1,186

Other liabilities, net of other assets
 
(57
)
 

Total purchase price
 
$
49,417

 
$
1,991


At December 31, 2016 and 2015, deferred cash obligations related to acquisitions completed in 2015 totaled $2.5 million and $5.1 million, and were carried net of a discount of $0.1 million and $0.2 million, respectively. Payments of deferred cash obligations related to these acquisitions totaling $2.4 million were made during the twelve months ended December 31, 2016.
The aggregate fair value of contingent cash obligations related to acquisitions completed in 2015 was immaterial at December 31, 2016, and $0.8 million at December 31, 2015. During the years ended December 31, 2016 and 2015, we recognized a net gain in the amount of $0.8 million and $0.6 million, respectively, due to changes in the fair value of the contingent cash obligations related to these acquisitions. There were no payments of contingent cash obligations made related to these acquisitions during the years ended December 31, 2016 and 2015.
2014 Acquisitions
InstaManager
In January 2014, we acquired certain assets from Bookt LLC, including the InstaManager product (“InstaManager”). InstaManager was a SaaS vacation rental booking engine used by professional managers of vacation rental properties which offered marketing websites; online pricing and availability; online booking; automated reservations; payment processing; and insurance sales. The acquisition of InstaManager expanded our product offerings to include property management software for the vacation rental market.
We acquired InstaManager for a purchase price of $9.2 million, consisting of a cash payment of $6.0 million at closing; a deferred cash payment of up to $1.0 million, payable over two years after the acquisition date; and contingent cash payments totaling up to $7.0 million if certain revenue targets were met during the twelve month periods ended March 31, 2015 and 2016. The initial fair values of the deferred and contingent cash payments were $0.8 million and $2.4 million, respectively. The deferred cash obligations were paid in the first quarters of 2015 and 2016. The performance target for the first contingent cash payment was achieved and the related payment was made in the third quarter of 2015. The second contingent cash target was not achieved and expired in the first quarter of 2016.
The acquired developed product technologies have a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of economies of scale from the integration of InstaManager into our pre-existing operating structure. This acquisition was financed using cash flows from operations.
We assigned an indefinite useful life to the trade name acquired, as we did not anticipate ceasing use of the trade name in the marketplace. In March 2015, we completed the integration of InstaManager with another vacation rental software product and concurrently ceased use of the trade name in marketing activities. As a result of this event, we assessed the InstaManager trade name for impairment. See further discussion of this analysis and conclusion in Note 6.
Virtual Maintenance Manager
In March 2014, we acquired certain assets from Virtual Maintenance Manager LLC, including the Virtual Maintenance Manager product (“VMM”). VMM is a SaaS product that facilitates the management of the end-to-end maintenance life cycle for single family and multifamily rental properties and provides property managers with enhanced visibility into their maintenance costs, manages resources, and provides enhanced business control for property managers. We integrated VMM into our existing Propertyware products.
We acquired the VMM assets for a purchase price of $1.2 million, consisting of a cash payment of $1.0 million at closing; deferred cash payments of up to $0.2 million, payable over two years after the acquisition date; and contingent cash payments of up to $2.0 million if certain revenue targets were met for the twelve-month periods ended June 30, 2015 and 2016. The initial fair value of the deferred and contingent cash payments was $0.2 million and less than $0.1 million, respectively. The deferred cash obligation was paid in the second quarters of 2015 and 2016. The contingent cash targets were not achieved and expired in the second quarter of 2016.
The acquired developed product technologies and client relationships were assigned useful lives of three and ten years, respectively. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of economies of scale from the integration of VMM into our pre-existing operating structure and from synergies with our existing products. The acquisition of VMM was financed using cash flows from operations.
Notivus
In May 2014, we acquired certain assets from Notivus Multi-Family LLC, including the Notivus product ("Notivus"). Notivus is a SaaS application that provides an outsourced vendor credentialing solution to assist multifamily owners and managers in the credentialing and ongoing monitoring of their current and prospective vendors, suppliers, and independent contractors. We subsequently integrated Notivus into our existing Compliance Depot products.
We acquired the Notivus assets for a purchase price of $4.4 million, consisting of a cash payment of $3.6 million at closing and a deferred cash payment of up to $0.8 million, payable over two years after the acquisition date. The initial fair value of the deferred cash payment was approximately $0.8 million. The deferred cash payments were made in the third quarter of 2015 and the second quarter of 2016.
The acquired developed product technologies were assigned a useful life of three years. Goodwill and identified intangible assets associated with this acquisition are deductible for tax purposes. Goodwill arising from the acquisition consisted largely of the economies of scale from the integration of Notivus into our pre-existing operating structure and from synergies with our existing products. This acquisition was financed using cash flows from operations.
Kigo
In June 2014, we acquired all of the issued and outstanding stock of Kigo, Inc. ("Kigo"). Kigo is a SaaS vacation rental booking system based in the United States with operations in Spain. Kigo offers services for vacation rental property managers that include vacation rental calendars, scheduling, reservations, accounting, channel management, website design, payment processing, and other tasks to aid the management of leads, revenue, resources, and lodging calendars. We integrated our existing vacation rental products with Kigo and launched an enhanced version of the software in March 2015.
We acquired Kigo for a purchase price of $36.2 million, consisting of a cash payment of $30.7 million and a deferred cash payment of up to $5.5 million, payable over two and a half years after the acquisition date. Interest is accrued on the deferred cash payment at a rate equal to the one-month London Interbank Offered Rate ("LIBOR"), plus a premium of 1.00%, and is payable on the date the underlying principal is due. The first deferred cash payment was made in the first quarter of 2016. This acquisition was financed from proceeds from our Revolving Facility and cash flows from operations. Direct acquisition costs were $0.5 million.
The acquired developed product technologies and client relationships were assigned useful lives of three and ten years, respectively. The trade name acquired has an indefinite useful life as we do not plan to cease using it in the marketplace. Goodwill and identified intangible assets associated with this acquisition are not deductible for tax purposes. Goodwill arising from the acquisition consisted largely of the economies of scale from the integration of Kigo into our pre-existing operating structure and from synergies with our existing products.
Purchase Price Allocation
We allocated the purchase price for InstaManager, VMM, Notivus, and Kigo as follows:
 
 
InstaManager
 
VMM
 
Notivus
 
Kigo
 
 
(in thousands)
Intangible assets
 
 
 
 
 
 
 
 
Developed technologies
 
$
4,490

 
$
671

 
$
1,840

 
$
2,570

Client relationships
 

 
200

 

 
1,120

Trade names
 
527

 

 

 
602

Goodwill
 
4,135

 
358

 
2,852

 
32,996

Deferred revenue
 
(33
)
 

 
(156
)
 

Deferred tax liabilities, net
 

 

 

 
(495
)
Net other assets (liabilities)
 
55

 

 
(141
)
 
(547
)
Total purchase price
 
$
9,174

 
$
1,229

 
$
4,395

 
$
36,246


At December 31, 2016 and 2015, deferred cash obligations related to acquisitions completed in 2014 totaled $3.9 million and $6.2 million, respectively. During the years ended December 31, 2016 and 2015, the Company paid deferred cash obligations totaling $2.5 million and $1.2 million, respectively, related to these acquisitions.
The aggregate fair value of contingent cash obligations related to acquisitions completed in 2014 was estimated to be zero at December 31, 2015. During the twelve months ended December 31, 2015, we recognized a net gain of $1.8 million related to changes in fair value and made payments totaling $0.5 million related to these acquisitions. There were no outstanding contingent cash obligations related to these acquisitions at December 31, 2016.
Acquisition Activity prior to 2014
We completed acquisitions in the years prior to 2014 for which deferred and contingent consideration obligations were included in the purchase consideration. The aggregate carrying value of deferred cash obligations related to these acquisitions was $0.1 million and $1.0 million at December 31, 2016 and 2015, respectively. During the years ended December 31, 2016 and 2015, the Company paid deferred cash obligations related to these acquisitions totaling $0.9 million and $1.4 million, respectively.
The estimated fair value of contingent cash obligations related to these acquisitions was zero at December 31, 2015. The Company made payments totaling $0.7 million and recognized a net gain of $1.1 million related to changes in the fair value of these obligations during the year ended December 31, 2015. There were no outstanding contingent cash obligations related to acquisitions completed prior to 2014 at December 31, 2016.
Pro Forma Results of Acquisitions
The following table presents unaudited pro forma results of operations for the years ended December 31, 2016 and 2015 as if the aforementioned acquisitions had occurred at the beginning of each period presented. The pro forma financial information includes the business combination accounting effects resulting from these acquisitions, including $1.4 million and $7.3 million of amortization charges from acquired intangible assets as of December 31, 2016 and 2015, respectively. We prepared the pro forma financial information for the combined entities for comparative purposes only, and it is not indicative of what actual results would have been if the acquisitions had occurred at the beginning of the periods presented, or of future results.
 
 
Year Ended December 31,
 
 
2016
Pro Forma
 
2015
Pro Forma
 
 
(in thousands, except per share amounts)
 
 
(unaudited)
Total revenue
 
$
578,985

 
$
534,625

Net income (loss)
 
$
16,065

 
$
(12,075
)
Net income (loss) per share:
 
 
 
 
Basic and diluted
 
$
0.21

 
$
(0.16
)